Box B
Measuring Household Debt
The existing level of household debt has a significant
bearing on how the household sector responds to
changes in interest rates and other factors that affect
their disposable incomes. In particular, the existing
level of household debt affects both the proportion
of income that households must devote to interest
payments and households’ willingness or ability to
take on additional debt. Household debt (and its
distribution) is also one important consideration
in assessing risks to financial stability. Other things
equal, more indebted households are more likely
to experience financial stress when facing adverse
shocks to their incomes and to reduce their
expenditure accordingly.
includes debt owed to: the financial sector, which
includes Authorised Deposit-taking Institutions
and mortgage securitisers; the state and federal
governments, which is primarily HECS-HELP debt2;
and overseas banks and governments, which is
mostly owed by recent migrants. It also includes
other accounts payable to these sectors and a range
of smaller entities, including to pension funds. These
other components of debt tend to be less responsive
to domestic interest rate changes than debt owed to
the financial sector. Debts to the non-financial sector
and other accounts payable currently comprise
14 per cent of the household sector’s overall debt
(Table B1).
There are various measures of household debt.
It has been common to focus on the debt
owed to the financial sector by households
excluding unincorporated enterprises. However,
unincorporated enterprises, which are primarily
small businesses and farms that are wholly owned
by households, are likely to be an important input
into household decisions about expenditure, saving
and borrowing. Moreover, for unincorporated
enterprises, liabilities are incurred personally by
the owners, their expenditure is included in the
national accounts measure of consumption and
the sensitivity of their debt to changes in interest
rates is close to that of debt held directly by private
households.1 Unincorporated enterprises are less
indebted than private households on average.
Table B1: Household Debt
Households’ decisions about consumption, saving
and borrowing are also likely to be influenced
by debt they owe to non-financial entities. The
national accounts measure of household debt
1 Enterprises that have become a corporation under the Corporations
Act (2001) are legally separate to their owners.
March quarter 2015
Debt owed to
Share Year-ended
growth
Per cent(a)
Financial sector
Australian
government sector(b)
Rest of the world
Other accounts
payable
86
6.9
2
3
15.1
10.8
9
7.5
(a)Of total household liabilities
(b)State and federal governments
Source: ABS
Household debts to the financial and nonfinancial sectors, measured as a share of household
disposable income, have moved roughly in line over
recent decades. Over the past few years, however,
household debt to the non-financial sector has
grown more rapidly (Graph B1). This has largely
been caused by debt owed to the government
sector and the rest of the world growing at a faster
2 The Higher Education Loan Program (HELP) replaced the Higher
Education Contribution Scheme (HECS) in 2005.
STATE ME N T O N MO N E TARY P O L ICY | AU G U S T 2 0 1 5
39
rate than debt to the financial sector. These trends
have been driven by an increase in the number of
government-funded university places for Australian
students and a high level of net overseas migration
in recent years.3
Graph B1
Household Debt*
Per cent of annual household disposable income
%
%
160
160
To all sectors
120
120
To the financial sector
80
80
40
1990
*
1995
2000
2005
2010
40
2015
Includes unincorporated enterprises; dashed lines exclude offset
balances; disposable income is after tax and before the deduction of
interest payments
Sources: ABS; RBA
3 Since migrants’ incomes have always been included in the household
income measures, including overseas debt held by migrants
necessarily increases the debt-to-income ratio.
40
R ES ERV E BA NK OF AUS T RA L I A
A comprehensive measure of household debt should
also be net of balances in offset accounts because
they effectively reduce the household sector’s net
debt position (see ‘Box E: Offset Account Balances
and Housing Credit’). Since offset account balances
have been growing faster than housing debt, this
netting reduces the increase in the household
debt‑to-income ratio somewhat, but not by enough
to offset the growth in debt to the government and
to the rest of the world. Overall, all measures point
to a moderate increase in household debt relative to
income in recent years. R